Exploring the Impossible: India Seeks to Expand Trade in Rupees; India Stock Market Sinks; Rupee Decline Continues

The desperate act of the day comes from Foreign Minister Salman Khurshid who says India Looking to Expand Rupee-Payment System.

India is exploring possibilities of a rupee-based trade-payment mechanism with several countries, Foreign Minister Salman Khurshid said Tuesday, a move that may help stabilize the local currency and reduce the country's current-account deficit.

India already has a rupee-based payment mechanism with Iran, which was worked out by New Delhi and Tehran to skirt Western sanctions against Iran. Under that, Iranian oil would be purchased with Indian rupees, which Iran would use to buy Indian goods, which include food, drugs, consumer products and auto parts.

India imports more than three-fourths of the crude oil it requires and a depreciating rupee has increased its energy costs in the local currency, adding to the government's fuel subsidies. The Indian rupee has fallen nearly 20% against the U.S. dollar since early May.

"Our commerce [trade] minister is in touch with many countries. Let's see where it is possible," Mr. Khurshid told reporters here. "If it is possible, than it would be of help to us right now," he added.

Exploring the Impossible

The only reason Iran accepts Rupees is because of embargoes by the US and Europe on trade with Iran. As a result, Iran is shut off from trade in dollars and euros, and in a desperate move of its own is willing to accept rupees.

No one else wants the damn things including India citizens who would rather own gold. See India in Serious Trouble (and Gold at the Heart of It).

Such reality does not stop foreign ministers from exploring the impossible, and wasting more time in the process.

The real world does not stop on such foolishness. For more on the real world, please see DeLong-in-Wonderland.

Also note the Rupee itself.

Rupee vs. US Dollar



The Rupee has declined 35% against the US dollar since July 2011.

Asia Pacific Stock Market



BSE is the India stock market.

That India's Foreign Minister is on a mission to explore the impossible is sure sign that desperation has set in, and India has no idea what to do.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Halloween Wreath for Our Front Door

Happy Tuesday!

I hope you enjoyed your long weekend as much as I did. I love long weekends because they give me some free time to craft. However, I did not have much of a crafting budget this week. We paid for husband's class, my monthly student loan bill and the mortgage this week.

Super tight budget + Overwhelming urge to create = Challenge accepted! 

I created a Halloween wreath for the front door for a grand total of $5.58 (and that's including tax ya'll). It is officially September so it is socially acceptable to start decorating for Halloween, right?!

Please ignore my arm reflecting in the glass of the door...

Being the craft supply hoarder that I am, I had most of the items for this project on hand like the paint and ribbon. All I had to buy where the letters which I got from Hobby Lobby for $1.74 each. 

Ready to try your hand at it? Here's what you need:

• Letters
• Black acrylic paint
• Orange acrylic paint
• Orange ribbon
• Q-tips
• Paper plate
• Hot glue gun
• Scissors

Step One. Paint all three of your letters black and let dry. It only took one coat for me to cover the letters completely.

Step Two. Once dry, squirt your orange paint on a paper plate and using your Q-tip, paint free-handed polka dots on your letters. Again, let the dots dry.

I promise that's not yellow paint...

Step Three. Once the letters are completely dry, tie them together using your orange ribbon. I was worried about the ribbon wiggling lose because I just tied it into a bow so I hot glued the back of the ribbon to the back of the letter.

Step Four. Secure the top ribbon that'll go on your wreath hanger with some hot glue. Once the hot glue has had time to dry and set, place that sucker on your front door.

I can't wait to get some pumpkins and some more mums to really bring my Halloween/fall front porch to life. Until then, Tilbolt, our garden gnome, will have to suffice. 

Happy creating!

Miranda

DeLong-in-Wonderland

Preposterous economic proposals from economists living in academic wonderland are the norm.

For example: Please consider the following statements by Brad DeLong, a professor of economics at the University of California at Berkeley, from his post Central Banking: Banking Camp vs. Macroeconomics Camp.

A prolonged and sustained central-bank policy of purchasing ever-increasing quantities of long-term assets is essential to get a financial sector with diminished appetite for risk to use some of its risk-bearing capacity for its proper purpose of reducing the risk burden on entrepreneurship and enterprise. But such a policy removes diminishes financiers' ability to rely on the easy business of riding the duration yield curve for profits. A simple and straightforward central-bank statement that in the aftermath of 2008-2013 it is clear that inflation targets in the 0-2%/year range run unwarranted downside employment risks, and that inflation targets should instead be in the 2-4%/year range is an obvious no-brainer from the standpoint of an organization that exists to balance aggregate demand to potential aggregate supply.

In Academic Wonderland

Those in academic-wonderland think inflation is the cure for everything. Somehow they know (or believe central banks should know)...

1. The right amount of inflation
2. The right amount of risk taking
3. The right amount of unemployment
4. The right policies that will achieve 1, 2, and 3 above.

In the Real World

• In the real world, the Fed can set inflation targets but the market does not have to agree
• In the real world, The Fed can target money supply but it cannot force consumers to borrow or banks to lend
• In the real world, asset bubbles frequently form before price inflation hits
• In the real world, the Fed missed a huge asset bubble in dotcom stocks in 1998-2000
• In the real world, the Greenspan Fed created the biggest housing and credit bubbles in history
• In the real world, Bernanke did not even realize there was a housing bubble until it burst

No Brainer or No Brains?

DeLong states "... it is clear that inflation targets in the 0-2%/year range run unwarranted downside employment risks, and that inflation targets should instead be in the 2-4%/year range is an obvious no-brainer..."

1. If inflation was a cure-all, India would not be in the midst of a currency crisis
2. If achieving 4% price inflation without causing other economic distortions was so easy, Japan would have had inflation decades ago

I could provide a thousand more examples but won't.

Delong-in-Fantasyland

DeLong humorously bills his blog as "Grasping Reality with Every Possible Tentacle: Brad DeLong's Semi-Daily Journal--Fair, Balanced, and Reality-Based 99.4% of the Time".

Let's return to the real world.

When Nixon closed the gold window, the expansion of credit exploded. The Fed blew asset bubble after asset bubble. Fed policies not only got the US economy in serious trouble twice, those policies continue to play a huge part in the wage discrepancies that inflationists like DeLong moan about.

In the real world, Japan got in trouble to the tune of 250% of GDP with ridiculous Keynesian and monetarist "solutions" that did not work.

In the real world, Japan is in deep trouble financing interest on its national debt, even at rates close to 0%.

Delong-in-Wonderland says the cure for such problems is more of the same policies that got us in trouble in the first place.

DeLong may as well stand in front of the ocean and command the tides to stop. Such is the thinking (or lack thereof) of those in ivory towers who think mind-over-matter and Alice-in-Wonderland policies work.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Blog Redesign

Happy Labor Day!

I wanted to pop in for a quick minute and introduce you to my blog redesign! Looks a lot better, huh? R.J. and I are closing in on our one year anniversary (Sept. 8 to be exact) which means my humble, little blog has been alive and thriving for just over a year now.

In this year, my blog has grown and taken off a lot more than I honestly expected it to. With that growth, I figured I need a more professional and clean looking blog design. I've got some big plans for this blog so its design needs to fit those BIG expectations, right?

What's new?

• New template - my blog redesign was created by AngieMakesWebsites. It was super easy to install and she provides some excellent tutorials to walk you through it all!
• New About Me - I sharpened up on my Photoshop skills for this one.
• Pin Button on ALL pictures - Instead of having to copy my link and pinning it onto Pinterest yourself, I've made it easy to pin by just putting your mouse over the picture. Try it out!
• Instagram Slideshow - See all my latest Instagram pictures while you read the blog. Boy, I love fancy gadgets like that. 
• Search Bar - Instead of hunting through archives, just type your keyword in that handy bar on the side bar.
• Follow Me Buttons - Before, I only three buttons. Now, I've got one for each of my social media sites for easy access.
• Most Popular Posts - Are you a new reader? Be sure to check out my most popular posts conveniently located on the side bar as well. 

Woosh. I've been a busy girl. Hopefully, this layout and design will be a lot easier for you to navigate. I'm kind of in love with it myself. 

See ya tomorrow!

Miranda

P.S. I've got a super cute tutorial coming your way tomorrow!

India Manufacturing PMI Contracts for First Time Since March 2009; Eurozone Manufacturing PMI 26-Month High of 51.4

A weak manufacturing recovery of sorts is underway in Europe. How long it lasts remains in question, with France not participating in the recovery.

The Markit Eurozone Manufacturing PMI® shows Final Eurozone Manufacturing PMI at 26-month high of 51.4 in August (July: 50.3).

Country PMI Rankings



The upturns in production at German, Italian, Dutch and Austrian manufacturers all strengthened on the back of improving inflows of new business. Output also rose further in Ireland and returned to growth in Spain as a result of an increase in new business. All of these nations also reported higher levels of new export business, with rates of increase hitting 28-month highs in Italy and the Netherlands, a 32-month record in Spain and a 29-month high in Austria. German exports rose following five months of decline, while the rate of growth in Ireland held broadly steady at July’s seven-month peak.

In contrast, output, new orders and new export orders fell at French manufacturers. Production also declined in Greece, despite stabilisations in both total new business and foreign demand following prolonged spells of contraction.

India Manufacturing PMI Contracts for First Time Since March 2009

The HSBC India Manufacturing PMI™ shows Manufacturing operating conditions deteriorate for first time in over four years.

Business conditions in the Indian manufacturing sector deteriorated during August for the first time in over four years, with both output and new orders falling at faster rates. Export orders also declined, ending an 11-month sequence of growth.

The seasonally adjusted HSBC India Manufacturing Purchasing Managers’ Index™ (PMI™) fell from 50.1 to 48.5 in August, indicating a moderate deterioration of business conditions. The latest index reading was the lowest in four-and-a-half years and the first sub-50.0 reading since March 2009.

Amid reports of fragile economic conditions and subdued client demand, new orders placed at Indian manufacturers fell solidly in August. Furthermore, the rate of contraction accelerated to the fastest since February 2009. Order book volumes across the intermediate goods sector decreased at a sharp and accelerated pace, while consumer goods producers registered a slight decline.

New business from abroad also fell, ending an 11-month sequence of growth. Anecdotal evidence suggested that competitive pressures increased and that demand from key export clients was weaker. Consequently, Indian manufacturers reduced their production volumes for the fourth consecutive month in August and at the fastest rate in four-and-a-half years.

Clearly this is not good for the Rupee. Nor is the outlook promising for India's preposterous growth target of 6 percent.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

India in Serious Trouble (and Gold at the Heart of It)

Last week India's trade minister, Anand Sharma, came out with a laughable suggestion: RBI should consider monetizing gold.

India’s central bank should look into the possibility of monetizing gold holdings, trade minister Anand Sharma said on Thursday, in the latest proposal aimed at combating a yawning current account deficit that has hammered the rupee.

It was not immediately clear whether Sharma was referring to the 557.7 tonnes of gold the Reserve Bank of India (RBI) holds in its own reserves, or gold in private hands. He did not give more details of how the proposal would work.

India has the world’s third largest current account deficit (CAD), which is approaching nearly $90 billion, driven in large part by a huge appetite for gold imports. The deficit has helped undermine the rupee, the worst performing major currency since May.

Any talk of using the country’s gold to help meet India’s international obligations revives memories of a 1991 balance of payments crisis—when India flew 47 tonnes of gold to Europe as collateral to avoid a sovereign debt default.

In comments published by The Hindu newspaper last week, David Gornall, chairman of the London Bullion Market Association, said India could raise $23 billion by swapping gold for a payable currency for a period of its choice, while remaining the long-term holder of the gold.

Free Money?

I am not sure which is sillier 1) proposing selling gold or 2) Proposing India could get $23 billion in free money by swapping gold while retaining ownership.

India Might Buy Gold From Citizens to Ease Rupee Crisis

Reuters picked up on this story in an equally convoluted report India Might Buy Gold From Citizens to Ease Rupee Crisis

India is considering a radical plan to direct commercial banks to buy gold from ordinary citizens and divert it to precious metal refiners in an attempt to curb imports and take some heat off the plunging currency.

A pilot project will be launched soon, a source familiar with the Reserve Bank of India's (RBI) plan told Reuters, although the idea was met with some scepticism.

India has the world's third-largest current account deficit, which is approaching nearly $90 billion, driven in a large part by appetite for gold imports in the world's biggest consumer of the metal. That has played a major role in driving the rupee to a record low.

"We will start a pilot project among some banks where we will allow them to buy back gold from individual households," the source, an official familiar with the central bank's plan, said. "This will start soon, we have discussed (it) with banks."

Radical Plan With Scant Details

Somehow India wants to buy gold from citizens, and it also wants to sell it (or sell gold bonds supposedly backed by gold). Details are scarce but it safe to conclude that the scheme is preposterous no matter what it is.

Pater Tenebrarum at the Acting Man blog pinged me with this comment "The Indian government is instituting one stop-gap measure after another. Buying gold from its citizens? For rupees? Don't make me laugh...Indians buy gold to get out of the rupee"

Stop-Gap Measures

In his post covering Stop-Gap Measures by India's Government, Tenebrarum stated ...

It also seems likely to us that some traders are worrying that India's government might do something stupid about its gold reserves or the gold held by its citizens. This worry is definitely justified, as India's government has so far done nothing but institute stop-gap measures to halt the slide of the rupee and the deterioration of the country's current account. Not a single step has been taken that would actually be required: bold reform is needed, but it is politically unpopular. And so the government takes one useless emergency measure after another – and it is definitely eying gold as the next vehicle to do something stupid with.

Should India try something with gold, it is perfectly safe to conclude no matter what the plan is, the plan will fail.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Terrorists Won the War on Terror; 74% of Pakistanis View US as Enemy, 60% Have No Confidence in Obama

Eric Tillberg, writer on Policy Mic says The War On Terror is Over, and the Terrorists Won.

After the first two shots of the War on Terror on September 11, 2001, the first major battle of the war occurred, and was lost, on October 26, 2001. This was the day the PATRIOT Act was signed into law by President Bush.

Terrorists, by killing 3,000 people in a spectacular fashion, goaded the United States into compromising its values and betraying its citizens.

As a followup, the terrorists won another victory with the establishment of the Department of Homeland Security on November 25, 2002. This department gives a much more menacing facade to the federal government and proved to be the moment when American citizens got the idea that they were viewed as the enemy by their own government.

Defeats continued with the establishment of the National Defense Authorization Act (NDAA), representing an increase in funding for an already bloated (and misnamed) Department of Defense. By this point, the American idea was on life support with little hope of reversal. The final blow that rang the bell of defeat for our nation was PRISM. Although PRISM began in 2007, we have only recently learned of its existence thanks to Edward Snowden.

The defeat of America in the War on Terror provides an excellent explanation for the resurgence of libertarian politics at home. It is a natural reaction, when one no longer trusts the government, to demand the right to keep and use arms and to demand that the government extract itself from most if not all aspects of our lives.

We don't only have to look internally to see that the terrorists have won. Al-Qaeda has not gone away and has not been obliterated. In this grand game of whack-a-mole, the moles see our weakening resolve to preserve ourselves and are encouraged by it. The passage of these laws must be seen as propagandistic victories to the terrorists and undoubtedly help in their recruitment. We must rediscover the American idea and begin living by it once again. This would be the best way to turn the tide on the War on Terror.

Pakistan and US Drone Policy

Shortly after 911, the US had support of the vast majority of Pakistani citizens. Polls now show only 55% unfavorable attitude towards Al Qaeda even as support dwindles elsewhere.



74% of Pakistanis View US as an Enemy

A PEW Research survey on Global Attitudes shows 74% of Pakistanis Call America an Enemy.

Roughly three-in-four Pakistanis (74%) consider the U.S. an enemy, up from 69% last year and 64% three years ago. And President Obama is held in exceedingly low regard. Indeed, among the 15 nations surveyed in both 2008 and 2012 by the Pew Global Attitudes Project, Pakistan is the only country where ratings for Obama are no better than the ratings President George W. Bush received during his final year in office.

Moreover, roughly four-in-ten believe that American economic and military aid is actually having a negative impact on their country, while only about one-in-ten think the impact is positive.

Only 17% back American drone strikes against leaders of extremist groups, even if they are conducted in conjunction with the Pakistani government.

Pakistani Views of US, OBama



Unwinnable War

Terror is a method. It is not possible to win a war on a method.

And because US drone policy kills many innocent people as did senseless invasions of Iraq and Afghanistan, more people resent US aggression now, than before 911.

Place yourself in the shoes of the average Pakistani who has lost a friend or family member in drone attacks. Would you think the US was an enemy? Of course you would.

Would you view those drone attacks as an act of terror? Of course you would. The US is making enemies hand over fist with its drone policy (which itself is an act of terror killing innocent civilians along the way).

How can you win a war on method, especially when you use the method yourself?

Is Obama another Bush Clone?

Please also see Is Obama Another Bush Clone? Another Nixon Clone?

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com